economic situation is dire

[snowychap]

Oopsy: Horse/stable door/bolted:

Energy bills will be unaffordable without system overhaul, says regulator

Energy regulator Ofgem today warned Britons may not be able to afford to heat their homes in the years ahead unless there is radical overhaul of the country's energy supplies.

The regulator warned the country's current system may not be sufficient to ensure "secure and sustainable" power across the country beyond 2015.

In announcing proposals for a radical range of options (pdf), including setting up central buying of power, Ofgem's chief executive, Alistair Buchanan, admitted that maintaining the current free-market approach was no longer an option.

Energy bills could rise between 14% and 25% by 2020 as the industry pays for the £200bn cost of investment needed to overhaul of the current system. He warned that increasing number of consumers would be unable to afford the cost of heating their homes.

The proposals could force the government to undo the privatisation of the energy markets led by Margaret Thatcher and could force a form of nationalisation again if it decides to implement central buying of power.

The regulator had previously warned that average household gas and electricity bills could reach nearly £2,000 a year without drastic action to shore up supply.

Buchanan said: "Our evidence shows that Britain has a window of opportunity to put in place far-reaching reforms to meet the potential security of supply challenges we may face beyond the middle of this decade. We do not advocate change lightly, but all the facts point to the need for reforms now to provide resilient supply security. Acting earlier will also help keep costs as low as possible for consumers and business."

The regulator has had more than 50 responses to a consultation it began in October and the most radical proposals in todays' "Project Discovery" conclusions is the need for a central buyer of energy.

"The overwhelming majority of responses to Ofgem's October consultation show that there is an increasing consensus that leaving the present system of market arrangements and other incentives unchanged is not an option. Ofgem has therefore put forward a range of possible options to unlock the up to £200bn of investment Britain may need. We are keen to work with government to find the best way forward," Buchanan said.

The regulator said reform was needed because of a confluence of events ranging from the global financial crisis, significant worldwide demand for investment in energy, tough EU emissions targets, the closure of ageing power stations and an increasing dependency on gas imports. "The outcome of Copenhagen, in terms of lower carbon prices, reinforces the climate of significant uncertainty just when an unprecedented level of investment is required," Ofgem said.

John Cridland, deputy director-general of the employers' body the CBI., said: "This report serves as a stark warning that existing policy will not deliver the balanced energy mix needed to provide security for the UK, help cut carbon emissions, and maintain competitive prices."

Ofgem said its analysis was consistent with the recent Energy Markets Outlook report, published jointly by the Department of Energy and Climate Change and Ofgem, that "our scenarios show supply to be relatively secure until around 2015".

The regulator set out five key issues:

• A need for unprecedented levels of investment over many years in difficult financial conditions and against a background of increased risk and uncertainty.

• The uncertainty in future carbon prices is likely to delay or deter investment in low carbon technology and lead to greater decarbonisation costs in the future.

• Short-term price signals at times of system stress do not fully reflect the value that customers place on supply security which may mean that the incentives to make additional peak energy supplies available and to invest in peaking capacity are not strong enough.

• Interdependence with international markets exposes Britain to a range of additional risks that may undermine the country's security of supply.

• The higher cost of gas and electricity may mean that increasing numbers of consumers are not able to afford adequate levels of energy to meet their requirements and that the competitiveness of industry and business is affected.

The Liberal Democrats seized upon the call for change, saying all homes should be insulated and more investment made in renewable energy.

Lib Dem energy spokesman Simon Hughes said: "We need to plan for maximum independence in energy for Britain and maximum independence in energy for Europe. In the meantime, the regulator needs to make sure fuel prices are fair prices and that the energy companies stop the regular exploitation of vulnerable customers."

The more radical of the changes proposed by Ofgem would require legislation, particularly the idea that there should be a central buyer of energy. Andrew Watkin, head of energy at property consultancy, Carter Jonas, supported the call for radical action. "A centralised renewables market might sound Stalinesque but it may be what is required to bring a structure and concerted strategy to the major campaign of the coming years – creating energy and protecting its supply," Watkin said.

The CBI also stressed that there would need to be "massive private-sector investment".

"In light of this, future policy must take into account the benefits of a competitive market and also the need to give some certainty to investors who will be required to pay for new energy sources," Cridland said.

He added: "Britain needs new nuclear plants, clean coal, gas generation, wind and other renewable sources to be developed quickly, as well as more gas storage facilities. Having a balanced range of energy sources will help avoid over-reliance on too few sources, and help ensure that energy prices are affordable for consumers and businesses alike".

[Gringo]

Well that's it then, might as well lock the thread, the recession is over and Mervyn the paranoid governor has turned off the printing presses, just in time for the incoming tory govt to take credit for the recovery - lol.

Rejoice! Rejoice!

[Awol]

Well that's it then, might as well lock the thread, the recession is over and Mervyn the paranoid governor has turned off the printing presses, just in time for the incoming tory govt to take credit for the recovery - lol.

Rejoice! Rejoice!

Great. So if the printing presses are cooling down then who is going to buy our gilts, because I thought we'd been buying a substantial amount of our own debt by priniting the cash?

[snowychap]

UK inflation accelerates to 3.5%.

The UK inflation rate rose to 3.5% in January - the fastest annual pace for 14 months - from 2.9% the month before, official figures have shown.

Consumer Prices Index (CPI) inflation was driven up by VAT returning to 17.5% and higher petrol prices.

Retail Prices Index (RPI) inflation which includes housing costs, rose up to 3.7% in January, up from 2.4%.

Bank of England governor Mervyn King has had to write a letter of explanation to the chancellor.

A letter from the bank's governor is required if inflation is more than one percentage point above or below the government's 2% target.

In it, the governor said the inflation rise was "temporary".

Mr Darling responded, saying the inflation outlook was "subject to some uncertainty" as the world emerges from the "deepest downturn in modern times".

Food factor

The CPI inflation rate is the measure targeted by the Bank of England's interest-rate setters, while the RPI rate is often used as a benchmark in wage negotiations.

And January's VAT rise was the biggest factor raising the CPI to 3.5%, according to the Office for National Statistics.

The government had reduced VAT to 15% for the previous 13 months, to try to boost consumer spending.

Higher fuel and transport costs also pushed the CPI up, and last month's cold weather increased some vegetable prices, with the cost of cauliflowers rising by the highest amount since 1996.

The Bank of England had warned inflation could rise to 3.5% this year but predicts it will fall back below the 2% target later in 2010.

This is because the economy remains relatively weak as it continues to recover from the recession that ended in the last quarter of 2009.

Price fears overdone?

Most economists expect the Bank to hold off from raising interest rates to try to bring inflation back down sooner.

UK interest rates have been at the record low level of 0.5% for 11 consecutive months, as the Bank seeks to aid the economic recovery.

However, earlier this month the Bank decided against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy.

Under QE, the Bank has pumped £200bn of new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.

A number of analysts said concerns about the current high rate of inflation was likely a factor in the Bank choosing not to extend QE.

However, former monetary policy committee member Professor David Blanchflower told the BBC that a spell of higher inflation would benefit the UK economy, suggesting that 4% would be a "pretty good starting point".

"You would actually end up inflating some of the debt away, but also if we get into a position where house prices were to fall further we are going to have a large number of people in negative equity, and if you have a few years of inflation that actually will deal with that problem."

Higher inflation would help to keep interest rates low, he added.

However, the combination of higher prices and lower rates is seen as punishing those who have put money aside, as the value of their savings is eroded while the returns they make on them declines.

How's that there 'real terms' 4% increase for pensions looking now, Darling?

[LondonLax]

It's just the VAT jump back to 17.5% comming through the system.

Infation will drop back down again next month.

Interest rates are staying low and growth is not stong enough to drive up inflation.

[Awol]

Interest rates are staying low and growth is not stong enough to drive up inflation.

Not growth, but a devaluing Pound will surely?

[snowychap]

It's just the VAT jump back to 17.5% comming through the system.

Is it just VAT?

How did the return to a 17.5% rate manage to affect the inflation rates (both CPI and RPI) before January's figures?

RPI has gone from -0.8% (I think) in October to 3.7% in January and CPI from 1.6% in Oct to 3.5% in Jan.

And bearing in mind it wasn't exactly an unknown, it appears rather concerning that neither the BoE or the treasury were able to accurately forecast where CPI or RPI would be if the increase is just down to VAT.

Infation will drop back down again next month.

Why? Are they intending to reduce the VAT rate again?

If talk of 20% VAT comes true after the next election then the inflation rate shortly after that might turn out to be horrendous (VAT rated goods will be, ceteris paribus, 5% higher than the previous year).

[johnvillan]

London evening standard

UK's finances 'ghastly' as tax falls and spending rises

18.02.10

Britain's public finances turned out much worse than expected in January as Government spending shot up and tax receipts fell sharply, the Office for National Statistics said today.

The Government borrowed a staggering £4.34 billion in January - a month that usually sees it in credit due to a seasonal surge in tax receipts. January is usually the biggest tax collection month due to the self-assessment deadline and quarterly company payments.

In January 2009, the Government repaid £5.27 billion.

Last month saw the first deficit for a January since records began in 1993. Analysts had forecast a repayment of £2.8 billion.

The appalling figures came as a major blow for Gordon Brown as the debate rages about the dreadful state of Britain's public finances. The UK is set to borrow £178 billion this year.

The ONS today said the deterioration in the numbers was due to central government receipts falling sharply as both income tax and capital gains tax inflows dropped markedly.

In January 2009, capital gains tax receipts had been boosted by the abolition of taper relief.

Government spending and interest payments also rose sharply, the ONS said.

On spending, unemployment benefits were one of the biggest increases as the jobless total spiralled. Official figures yesterday showed the number of people claiming dole benefits jumped by 23,500 in January to 1.64 million.

The government has pledged to halve its budget deficit over the next four years.

Andrew Goodwin, Senior Economic Advisor to the Ernst & Young ITEM Club, said: “These are pretty ghastly figures and come as somewhat of a surprise given the smaller overshoots of the past couple of months. January usually yields a healthy surplus due to receipts from corporation tax and even in the current climate it is surprising to see the government rack up a deficit. If this overshoot is replicated in February and March then the Chancellor's full year forecast will certainly be under threat.

“These figures emphasise the scale of the fiscal challenge facing the next government. The current HMT forecasts are far too optimistic, both in terms of the speed of recovery and the extent to which tax revenues will recover, and it is clear the major additional tightening will be required.”

link

[LondonLax]

It's just the VAT jump back to 17.5% comming through the system.

Is it just VAT?

How did the return to a 17.5% rate manage to affect the inflation rates (both CPI and RPI) before January's figures?

RPI has gone from -0.8% (I think) in October to 3.7% in January and CPI from 1.6% in Oct to 3.5% in Jan.

And bearing in mind it wasn't exactly an unknown, it appears rather concerning that neither the BoE or the treasury were able to accurately forecast where CPI or RPI would be if the increase is just down to VAT.

Yes it is not entirely down to the VAT increase, the price of fuel is up also but everying I have read says that the main reason for the spike is the fact that everything has increased by 2.5% this month due to VAT returning to normal.

Infation will drop back down again next month.

Why? Are they intending to reduce the VAT rate again?

If talk of 20% VAT comes true after the next election then the inflation rate shortly after that might turn out to be horrendous (VAT rated goods will be, ceteris paribus, 5% higher than the previous year).

No VAT won't reduce but it wont rise either so prices will stay the same i.e. there will be no inflation due to VAT changes.

When the fuel price starts to fall again the inflation rate will come down even further.

If VAT is increased in 6months than there will be another inflation spike that month showing prices have changed more than usual that month, then it should drop back again as there will not be a similar price increase the month after.

[Gringo]

back on inflation, this temporary rise mervyns on about.....not everyone is of the same opinion.....

Hamish McRae: The inflation genie is out of the bottle

Inflation is on the march again – and has some way further to go before it comes back under control. Worse, if the Bank of England comes to be seen as soft on inflation, that could jeopardise the whole easy-money strategy that has helped to pull the economy out of recession. So the problem is not just inflation. It is the credibility of our willingness to do anything about it.

If that sounds alarmist consider this. The consumer price index, the one used as a target for monetary policy, is 3.5 per cent, against the central point in the target range of 2 per cent. That overshoot has led to the Governor writing to the Chancellor. But the CPI has grave flaws; most seriously it does not include housing costs, which most people would consider rather an important aspect of their cost of living. The retail price index, which does include housing and is the one most commonly used for setting benefits, pay deals and the interest in index-linked government debt, was up 3.7 per cent.

But that index also has flaws, most notably that it is affected by swings in mortgage interest rates, which are currently artificially low. The RPI excluding interest charges (the RPIX), which the Bank used to use as its main target for inflation, is up, wait for it, by 4.6 per cent. So the underlying rate of inflation, on what is generally accepted as the most representative measure, is actually a full percentage point higher than the official one.

So inflation is even worse than it appears. What happens next? Well the Governor's letter argues that inflation is likely to fall back to the 2 per cent level in the second half of the year and that the probability is it will then go below it. The Bank's Inflation Report, published last week, suggested that CPI inflation is likely to fall to about 1 per cent early next year – that is the mid-point of its expected range.

If that were to happen all would be well. Unfortunately there are a number of reasons to think it may be under-estimating inflationary pressures. A year ago the Bank thought that inflation by now would be close to 1 per cent. Indeed the very top end of its expected range for the CPI was 3 per cent. So it has been completely wrong. And it has been wrong despite the fact that the recession has been somewhat more severe than it expected then. We all make mistakes, but that was a big one.

Actually, the Bank has been consistently underestimating inflationary pressures for the past four years. I have been looking at some work by Simon Ward, the economist of the fund management group Henderson, and he points out that the CPI has gone up by 2.8 per cent a year over that period, not the 2 per cent target that the Bank was supposed to attain.

.....

The parallel is fiscal policy. The UK is not yet in the position of Greece, having its fiscal policy determined by outside forces, but we are in danger of that happening. The capital markets division of Royal Bank of Canada yesterday put out a ranking of sovereign risk – the risk that a country cannot repay its debts.

Ireland and Greece came at the top, as you might expect, followed by Portugal and ... yes, the UK. On that ranking we are more of a risk than Italy, France and Spain. That is just the view of one bank but it echoes those of others in the business of advising savers around the world of the risks of investing in different countries.

Now we all know the reasons for this and we all know that our fiscal position will have to be tackled after the election. There is an obvious danger that the next government will not have the authority to do so. I happen to think that it will, whatever the outcome of the election, but this issue will not be determined by commentators; it will be determined by global investors.

.....

None of this means that the Bank of England should be so concerned about inflation as to increase interest rates right away. That would be silly. What it does mean is that the Bank's monetary committee needs to be aware that its reputation is on the line. It should not assume it has the trust of the markets. If it is right about this surge in inflation being temporary that will be fine. If it turns out it is wrong then it will have no option but to start on the path back to normal interest rates, rates that reward savers rather than subsidise borrowers. All of us need to be aware that these low interest rates may not last many more months.

[LondonLax]

There are a lot of people with large savings cheering for a big inflation rise to force up interest rates again (bringing inflation back down in the process obviously), the last couple of lines in that article suggest Hamish might be in that camp.

It depends on whether you have large savings or a large mortgage as to what you will be cheering for this year.

Fortunatly (or unfortunatly) I have neither

[LondonLax]

Interest rates are staying low and growth is not stong enough to drive up inflation.

Not growth, but a devaluing Pound will surely?

That's already happened though hasn't it? It might continue to drop which would incease inflation but if it has found a level for a while then inflation shouldn't change either because of that.

[kidlewis]

our only hope is that Greece goes to shit and the euro crashes, then people start booking lots of holidays abroad through Thomson and Thomas cook and spends millions at stores like boots and next getting ready for summer holidays.

Won't happen though.

The world cup will help because supermarkets takings will go ape shit.

I remember last time when we had a bbq summer (2002) and I went into tescos in Warwick and they had pretty much Special brew and Bierre Blone left, hardly any meat, and no crisps.

I think the only way we can truly get out of the recession is to sig up Britain and move it down and to the left about 3000km alongside Tenerife.

[snowychap]

Yes it is not entirely down to the VAT increase, the price of fuel is up also but everying I have read says that the main reason for the spike is the fact that everything has increased by 2.5% this month due to VAT returning to normal.

Yet in the same sentence you have indicated that you are aware that it isn't just down to VAT (the cost of borrowing also seems to have increased over the last couple of months).:?

No VAT won't reduce but it wont rise either so prices will stay the same i.e. there will be no inflation due to VAT changes.

The headline rate of inflation is measured year on year and not month to month (prices in the basket actually fell by 0.2% from December to January - which was a 'record' in terms of the small size of the fall).

The 'temporary' blip caused by the return to 17.5% will be temporary for the year, won't it?

When the fuel price starts to fall again the inflation rate will come down even further.

If fuel prices come down then that might well bring inflation down then again they might go up which would help to keep inflation going the other way.

As pointed out in the article Gringo posted above, Merv and his team are not that great at guessing what will happen with inflation (we won't go in to how shit the treasury are ).

[Gringo]

Of course there was another reason for inflation which we won't see again for a year

In the run up to Christmas 2009 leading supermarkets Asda and Tesco announced millions of pounds worth of price cuts. What many shoppers did not know was that thousands of prices at those retailers also increased in that period.

We used data compiled by third party analysts from the Asda and Tesco online stores to show how many price rises were imposed between December 9 and December 22. The companies say that prices on their websites are reflected nationally in their stores - and that the majority of the rises reflected products coming off promotions.

The data shows that Asda increased prices on over 2,000 lines in the run up to Christmas while Tesco raised over 1,500 prices.

links to full lists here - another example of how unregulated capitalism is failing the people

[Awol]

Interest rates are staying low and growth is not stong enough to drive up inflation.

Not growth, but a devaluing Pound will surely?

That's already happened though hasn't it? It might continue to drop which would incease inflation but if it has found a level for a while then inflation shouldn't change either because of that.

You could be right mate, but imo a worrying amount of intelligent people are still in massive denial about the state the UK economy is actually in. When the Tories take over they will have to let us know how bad things really are to avoid catching the flack later. The PFI accounts alone are going to cause a few heart attacks.

That's not even the worst case though, our banks are exposed to the tune of 250 billion in the PIGS countries. If more banks look like going under then the only option other than letting them fail seems to be loading the price of their idiocy onto soveriegn national debt (like last time) so instead of banks going broke, countries will.

Personally I think the worst (much worse) is still to come.

[Gringo]

Well that's it then, might as well lock the thread, the recession is over and Mervyn the paranoid governor has turned off the printing presses, just in time for the incoming tory govt to take credit for the recovery - lol.

Rejoice! Rejoice!

About turn

Mervyn King, the governor of the Bank of England, warned today that the weakness of the eurozone is jeopardising the UK's recovery, and the emergency £200bn quantitative easing programme might have to be re-started if the economy deteriorates in the coming months.

"My particular concern at the moment derives from the health of the global economy, and in particular our major trading partner, the eurozone," the governor said.

Much of the 16-member eurozone bounced out of recession by last summer, but recently-released data for the final quarter of 2009 showed that Germany, the eurozone's largest economy, stagnated, and several other countries, including Spain and Ireland, remain weak, while Greece is battling to avoid a default on its debts.

Charlie Bean, the Bank's deputy governor, warned that he expects recovery in the eurozone, as in the UK, to be "sluggish".

King struck a pessimistic note about the prospects for a global recovery, and warned that the UK had, "embarked on a process of healing," which would take some time. He stressed that, "risks to the [bank of England's monetary policy] committee's central view of a gradual recovery of output remain to the downside."

Despite news last week that inflation jumped to 3.5% in January, the governor repeated his insistence that the monetary policy committee (MPC) stands ready to extend its £200bn scheme to pump money into the economy. The pound fell more than 1.2 cents against the dollar during the hearing, from $1.5539 to $1.5413.

Playing it by ear it would seem.

[chrissmith921]

Can someone explain in simple terms, why the **** we are paying well over £1.10 a litre for fuel even though oil has dropped like ****.

[Awol]

Can someone explain in simple terms, why the **** we are paying well over £1.10 a litre for fuel even though oil has dropped like ****.

Very simple terms, tax. No incomng government of any shade will lower it either.

Edit: Just to illustrate, over here in Oman you can fill up a twin tank Landcruiser for just over 30 quid - there is no tax on fuel.

[Awol]

Gringo,

I think the plan is to devalue us out of the debt. If we'd gone into the Euro when Blair wanted (and on this single issue Brown deserves credit) we'd be in very deep doodoo right now.